Can Air Canada stock in 2024?

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Written via Aditya Raghunath in The Motley Fool Canada

Air Canada (TSX:AC) was among the most productive stocks on the TSX in the decade before COVID-19. During this era, Air Canada and its peers experienced a long era of economic expansion and low interest rates, which allowed them to grow their profits and their money at a healthy pace.

In 2020, the global airline industry was decimated by border closures due to the COVID-19 pandemic. As the airline industry is incredibly capital-intensive, airlines have been forced to accumulate debt on their balance sheets to offset their rate of money burn.

While Air Canada shares rose more than 3000% between 2010 and 2020, they are currently trading 62% below all-time highs, allowing it to buy the dip. Let’s see if Air Canada stock can finally recover in 2024.

Despite a dubious macroeconomic environment, Air Canada posted record revenue of $21. 8 billion in 2023, a 32% year-over-year increase as air demand remained strong. Its annual operating profit was $2. 3 billion, compared with a loss of $200 million. in 2022. In addition, Air Canada’s adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) more than doubled to just about $4 billion.

Air Canada carried 46 million passengers in 2023 as it continues to focus on improving its operations amid headwinds such as inflation and supply chain challenges. A developing profit margin has enabled Air Canada to improve its balance sheet, reduce debt and cope with fare pressures.

Air Canada’s total debt increased from $7. 1 billion in 2019 to $13 billion in 2021. It currently stands at $10. 5 billion. Rising interest rates and emerging market debt pushed Air Canada’s gross interest expense up to $944 million in 2023 from $515 million in 2019.

Air Canada reported operating money of $4. 3 billion and loose money of $2. 8 billion in 2023, indicating it spent $1. 6 billion on capital expenditures. Given its pool of loose cash, the Canadian airline giant has the flexibility to reduce its debt and short-term interest expense.

Finally, Air Canada has noticed that its club in its Aeroplan program has doubled to 8 million in the last five years. An increase in the number of firm members is expected to result in higher participation rates for Air Canada over time.

Analysts sticking to Air Canada by percentages expect sales to rise 3. 1% year-over-year to $22. 5 billion in 2024. In comparison, percentage-adjusted earnings are expected to decline to $3. 65 in 2024 from $4. 56 in 2023.

Valued at 0. 3 times forward sales and 5. 4 times future earnings, Air Canada shares are cheap. Analysts remain bullish on Air Canada and expect the stock to rise 40% from current levels.

Air Canada is a heavily indebted company that is suffering due to high interest rates and a sluggish macroeconomy. The cyclical nature of the airline industry has made Air Canada shares a high-risk investment. However, if interest rates fall and global economic expansion decisions rise for more than 12 months, Air Canada is expected to generate huge profits for its shareholders.

The article Can Air Canada Inventory Be Recovered in 2024?first appeared in The Motley Fool Canada.

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